Author(s): Peter Bryer
Amazon's interest in the mobile payment market is of little surprise yet it comes at a time when investors are already questioning many of the retailer's longer-term investments (see Instant Insight: Amazon Results, 2Q14). The current gold rush in mobile payments has already attracted an eclectic set of competitors from Starbucks to Square. We wonder if Amazon's strengths will overcome its disadvantages if it attempts to become a neutral payment processor.
Some reports indicate Amazon will unveil a credit card reader similar to Square and PayPal Here. Initially to be sold via Staples in the US, the reader would place Amazon in the mobile payments business among many start-ups and established players. Amazon would be competing against point-of-sale terminal vendors such as VeriFone, Ingenico and Hypercom on one side and potential new entrants such as Apple and Starbucks on another.
Like Apple, Amazon enters the market with a vast number of user accounts (now more than 250 million) and an established brand. But the business model behind an Amazon-serviced credit card reader is unclear. The online retailer would face hostility from larger brick-and-mortar stores, but the device could allow Amazon to build relationships with smaller shops.
The company recently introduced Amazon Wallet, a card replacement service and app that enables users to store loyalty card information in the Amazon cloud. Users can present the membership information at stores in the form of a barcode, QR code, text or image that can be scanned or typed in manually. This user info can be viewed by the account holder next to other information which is already shared with Amazon including credit card numbers and bank accounts. Amazon Wallet could provide the company with a vast amount of user behavioural data.
Amazon is entering the mobile wallet market when it could be argued that it is wisely benefitting from a second-move advantage. Despite years of effort, the mobile payments market has received little enthusiasm from consumers, but we see opportunities with the right combination of brand, usability, convenience and customer loyalty. Starbucks' mobile payment app, for example, now has more than 12 million active monthly users. Starbucks is expected to use the popularity of this app to enter the payment market at non-Starbucks locations. There is also the potential of Apple, which has more than 800 million iTunes accounts, to make a significant impact on the mobile payments market, possibly using biometrics information for added security and improved usability.
After the unveiling of the Fire Phone, Amazon is adding more uncertainty to its portfolio. While it is wise to explore ways to make the most of its huge number of customers, Amazon could begin to fall victim something just as dangerous as technology disruption: technology distraction.